HOSPITAL GOVERNANCE IN THE NETHERLANDS

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Eurohealth OBSERVER

Eurohealth incorporating Euro Observer — Vol.19 | No.1 | 2013 12

HOSPITAL GOVERNANCE IN THE NETHERLANDS

By: Hans Maarse

Summary: Governance arrangements for general hospitals in the Netherlands are based on their status as private entities with high degrees of institutional autonomy. Instead of a formal regulatory framework, a voluntary Health Care Code describes the structure of relations, tasks, conflicts of interests, competences and

accountability of the executive and supervisory boards of publicly- funded provider organisations such as hospitals. The Code is a product of self-regulation; while not legally binding, in practice, it has acquired a quasi-binding status. However, for some issues, such as how public hospitals may utilise budget surpluses, it is expected that a more binding regulatory framework based on legislation may be established in the future while for other issues, such as imposing a cap on the remuneration of hospital executives, legislative provisions have recently replaced self-regulation.

Keywords: Hospital Governance, Netherlands, Health Care Code

Hans Maarse is Professor of Health Policy Analysis, Maastricht University, the Netherlands. Email:

h.maarse@maastrichtuniversity.nl

General hospitals in the Netherlands are private organisations. Gradually, all former public hospitals have been converted into private entities with a high degree of institutional autonomy. In addition, due to a legal ban on for-profit hospital care in health legislation, hospitals have a not-for-profit status.¹ The Health Insurance Act (Zorgverzekeringswet), which came into force in 2006 and integrated the former sickness fund scheme and private health insurance arrangements into a single mandatory scheme covering all legal residents,² pays for the bulk of hospital care. Thus, private provision of hospital care is combined with public funding.

Most general hospitals have the legal structure of a foundation (stichting) and

because of their private status, they are not hierarchically subordinated to the Minister of Health or any other public authority.

As a consequence, public authorities are not involved in the appointment (or discharge) of the members of the hospital’s executive and supervisory board. The situation is different for university medical centres. Here, with the exception of two centres, the Minister for Education is formally charged with the appointment of the members of the supervisory boards, which in turn appoints the members of its executive board.

Scant regulatory framework

There is hardly any regulatory framework for hospital governance. Legislation only requires general hospitals to

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have an appropriate administrative structure. To fill the ‘regulatory gap’, the representative associations of health care providers (executives and supervisors) agreed in 2005 upon a Health Care Code (hereafter, the code) describing the structure of relations, tasks, conflicts of interests, and competences and accountability of the executive and supervisory boards of publicly-funded provider organisations such as hospitals, nursing homes and others facilities for planned and residential care.

The code, which was renewed in 2010, can be regarded as the product of self- regulation. It is not legally binding, but provider organisations are expected to adhere to it (i.e. ‘play or explain’). In practice, the code has acquired a quasi- binding status, as provider organisations which do not respect the code cannot be a member of any representative organisation which has signed it. Furthermore, insurers increasingly require provider organisations to adhere to the code as a precondition for contracting. In addition, the national association of university medical centres adopted its own code in 2008. It draws to a great extent upon the Health Care Code, but nevertheless deviates from it in some respects because of differences in the regulatory framework of university medical centres and hospitals respectively.

Why a code?

The adoption of the code cannot be considered separately from the fundamental changes currently taking place in Dutch hospital care. As a consequence of the introduction of regulated competition, hospitals are seen as enterprises with a social purpose which must act in an increasingly competitive environment. Nowadays, they are also much more at risk than they were in the recent past. Furthermore, hospitals are held increasingly accountable to the general public on their performance, in particular with regard to quality of care. Quality measurement and quality reporting are currently being embedded as new elements in health care. These developments make the professionalisation of hospital governance increasingly indispensable as the renewed

code explicitly identifies quality and safety of care as central elements of hospital governance.

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code can be seen as an attempt to restore public trust

The revision of the code in 2010 was not only based upon an evaluation of the 2005 code. The near bankruptcy of some hospitals and the occurrence of a number of significant failures in quality management had undermined public trust in the quality of hospital governance.

Thus, the renewed code can be seen as an attempt to restore public trust. It aims to offer hospitals a common reference framework for the structuring and evaluation of hospital governance.

Accountability

Unlike in many other countries, the local or regional community, including local or regional public authorities, is not directly involved in hospital governance.

At the same time, however, hospitals are publicly funded enterprises which are held accountable to the community. For this reason, the code requires hospitals to publish an annual document in which the executive and supervisory boards give a full account of their activities.

Furthermore, hospitals are obliged to make clear whom they see as their stakeholders, how they organise consultation with these stakeholders and how they plan to inform them. The code also includes a list of topics about which hospitals must inform and/or consult their stakeholders – for example, changes in their mission or strategic objectives, planned mergers and acquisitions, and expansion or contraction of working areas. As yet, the impact of these obligations on hospital governance is unclear.

Executive Board

The basic assumption underpinning the code is that hospitals should be governed by an executive board which is supervised by a fully independent supervisory board.

The executive and supervisory boards together form the nucleus of hospital governance. This assumption draws upon a practice that has evolved over the last two decades in Dutch health care. Thus, the code in fact codified common practice.

Its main objective is to translate this practice into a proper and clear regulatory framework to strengthen the effectiveness of hospital governance.

The executive board (Raad van Bestuur) is a relatively new actor in hospital governance. Until the early 1980s many hospitals still had a medical superintendent who combined – usually on a 50 /50 basis – his or her practice with the hospital directorship.³ Currently, each hospital has an executive board of between one and three members who are recruited on the basis of their assumed expertise. There is no compulsory requirement that a person with a medical background should be the chairman of the board; its members may also be recruited from outside the medical profession. They are appointed by the supervisory board, after consultation with the employees’ council and the clients’

council. It is common to also ask the medical staff for its opinion.

The code charges the executive board with full responsibility for the strategic and operational management of the hospital as well as the hospital’s relationship with the

‘outside world’ (e.g. with the Minister of Health, insurers, financial agencies and, last but not least, the media). In theory, the board can make unilateral decisions but in practice this does not work well.

To be successful, it must continuously build a sufficient level of support for its decisions within the organisation. For a set of specific decisions, it also needs the formal approval of the medical staff and the employee’s council. The decisions for which formal approval of the medical staff applies are formulated in the Medical Staff Document which was given legal basis by the Integration Act, 2000. This regulatory framework conceptualised the hospital as an ‘integrated medical specialist enterprise’.

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An important task of the executive board is to inform the supervisory board about matters in a timely and adequate manner.

In practice, this appears to be a delicate issue. To reinforce its position, the supervisory board is formally permitted to acquire extra information from hospital employees or external advisors. The 2010 Code also includes an arrangement for whistle blowing. Whistle blowers are legally protected if they inform the executive board about alleged misconduct.

If these problems concern a member of the executive board, the whistle blower reports to the chairman of the supervisory board.

‘‘ of care and ^quality patient safety are explicit topics for supervision

Supervisory Board

The code requires each hospital to have a supervisory board (Raad van Toezicht) which appoints and discharges the members of the executive board and supervises the functioning of the executive board and its individual members.

Furthermore, it must approve a number of specific decisions and documents by the executive board, including the annual budget estimate, strategic and investment plans and decisions relating to property transactions and decisions on consolidations. Quality of care and patient safety are explicitly mentioned as topics for supervision. Finally, the supervisory board is in charge of the remuneration of the members of the executive board.

There are no formal rules regarding the number of board members. In practice, the number has tended to be smaller than in the past and most boards now have only five to seven members. The supervisory board appoints its own members (co- optation). For a long time, board members were not selected because of their

expertise but for their position in the upper echelons of the local community. Now,

because of the need for professionalisation, the code obligates the supervisory board to follow a formal selection procedure with an explicit description of the expertise required, with the objective of having a variety of expertise on board.

The code contains only minimal regulation regarding the number of annual meetings of the supervisory board. It requires the board to discuss, at least once a year, the strategy of the hospital, the most important risks the organisation is facing and the effectiveness of internal control systems. The average number of annual meetings can be estimated at about six while specific circumstances (e.g. mergers, crises) increase the frequency of meetings.

The supervisory board is not in charge of hospital management, but functions – apart from its formal competences – as a sounding board to the executive board.

Strategic and operational management is the exclusive responsibility of the executive board. Hence, the supervisory board must operate at a distance from the executive board. However, there is no clear answer regarding what operating ‘at a distance’ means in practice. Supervision remains a subtle matter, requiring much expertise and a sensitive antenna. It is also a matter of trust in the executive board, but that trust should be permanently deserved.

The code prescribes that the supervisory board must regularly assess its own functioning as well as the interplay with the executive board.

This model of the supervisory board has some weaknesses. A first weakness concerns its position relative to the executive board. Can the supervisory board function as an effective countervailing power which is able to intervene in a timely and effective manner when needed? Of course, the answer to this question depends to a great extent upon the professional capacity of the supervisory board. But it remains a delicate issue in spite of the regulations in the code to strengthen its position relative to the executive board by obligating the latter to inform it fully and punctually so that it may fulfil its role properly.

A second weakness concerns the question of who supervises the supervisor. This question arises because of the problem of ownership. As mentioned earlier, hospitals are not owned by public authorities or private investors (although there are now a few exceptions), but by a foundation which has no owner(s) itself.^* A foundation also lacks a general assembly which has ultimate power. Therefore, what does the accountability of the supervisory board concretely mean if a hospital fails to function properly? The general trend is to hold the board and its members (co-) accountable for mismanagement. In case of manifest failure, members may be held personally liable – membership of a supervisory board has indeed become a job of great responsibility!

Medical staff and other stakeholders The code does not regulate the relationship between the executive board and medical staff. It only holds the executive board responsible for the functioning of the hospital in its entirety, thus including the quality and safety of care provided by its doctors. Yet, hospital governance cannot be well understood without taking the role of the medical staff into account.

Employed and self-employed specialists have usually organised themselves into the association of medical specialists which elects a medical staff board from among its members. The medical staff board frequently interacts with the executive board on strategic and operational issues, but most of the time it does so without a general mandate from the medical staff.

As a consequence, the medical staff board must consult its constituency for approval of agreements with the executive board.

The relationship between medical staff and executive boards may be tense, which explains why so many executives have had to leave the organisation prematurely.⁴ The relative strength of the medical staff vis-à-vis the executive board is great.

The Law on Employees’ Councils regulates which management decisions the council has the right to give advice on and over which ones it has the right of approval. In the latter case, if the

* Foundations may be established by a parent foundation but this does not solve the weakness raised here. It only displaces the structural weakness to the parent foundation.

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employees’ council formally withholds its approval, the hospital’s executive board may ask the court to annul the council’s decision, but it cannot implement its decision during this procedure. Hospitals are also required by law to have a client council representing patients’ interests in hospital governance.

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surpluses must be reinvested in the hospital

New developments

Since a hospital can only function as a private not-for-profit agency, if it manages to achieve a budget surplus, then it can either reinvest the surplus or add it to its reserves. This arrangement also applies to the few hospitals which are presently owned by a commercial corporation. In all cases, hospitals cannot pay their owner(s) a return on investment. However, there are some legal constructions which make it possible for a hospital to act as the (co-) owner of for-profit entities and the code addresses this problem by stipulating that in such a situation a return on investment must be in accordance with the hospital’s social purpose, which in concrete terms means that any surpluses must be reinvested in the hospital. It is likely that on this issue of surpluses, self- regulation by the code will be replaced with a binding regulatory framework. The new government in office (a coalition of the Liberal Party and the Labour party) recently announced that it plans to lift the ban on for-profit hospital care, but the new arrangement will include strict conditions to keep ‘unwelcome’ investors out and avoid hospitals evolving into profit- maximising enterprises. Nevertheless, it remains to be seen how the new legislation will be drafted: for-profit hospital care has always been a politically sensitive topic in Dutch health care.

Another new development focuses on the remuneration of the executive board.

The code charges the supervisory board

with managing the remuneration of the executive board. At the request of the government, the national representative organisations of supervisors and executives introduced a remuneration code which contained criteria for how to determinate a fair remuneration.

This code, in force since 2009, was another piece of self-regulation. It was complemented by state legislation obligating provider organisations to publicly report, at the individual level and in detail, on the remuneration of supervisory and executive board members.

The assumption underlying this regulation was that transparency would induce moderation. However, the regulation had a counterproductive ‘escalating’ effect as in practice, members of the executive board claimed better remuneration by referring to what other provider organisations were paying their executive boards.

Currently, remuneration of hospital executives has become a political issue.

The general public tends to believe that they (and many other executives and top-level officials in the public sector) are heavily overpaid, and this is seen as an adverse effect of market competition. To address this problem, the remuneration code has been replaced with new legislation, in force from 2013, which limits the maximum yearly remuneration of chief executives in the public sector to 130% of the so-called ‘Balkenende norm’ of about €180 000 (Balkenende was Prime Minister from 2002 – 2011). The law is disputed by the national representative bodies of hospital executives and supervisors on practical grounds and in principle. At the practical level, the representative bodies object to the fact that a remuneration cap will be increasingly applied (as it is a legal requirement) while the in-principle objection springs from their contention that hospitals do not form part of the public sector, even though hospital care is largely publicly funded. The latter view contrasts with the government’s view which sees hospitals as part of the public sector. The National Association of Hospital Executives started a legal process contesting the state regulation on remuneration, but lost its case.

Although the new state regulation on executive payment levels must be viewed within the context of some past remuneration scandals which received a lot of media attention, it nevertheless remains a somewhat curious measure.

On the one hand, the state views hospitals as enterprises which can decide on their own capital investments and which incur significant financial risks. On the other hand, the new regulation expresses a stronger state influence over hospital governance. Is this another hybrid in Dutch hospital care?

References

1 Jeurissen P. For-profit hospital. A comparative and longitudinal study of the for-profit hospital sector in four Western countries. (Doctoral dissertation).

Rotterdam: Erasmus University, 2010.

2 Bartholomée Y, Maarse J. Health insurance reform in the Netherlands. Eurohealth 2004;12(2): 7–9.

3 Maarse J, Lodewick L. Hospital governance in the Netherlands. In: RB Saltman, A Duran, H Dubois (eds). Governing public hospitals: reform strategies and the movement towards institutional autonomy.

Brussels: European Observatory on Health Systems and Policies, 2011: 179–200.

4 Lodewick L. Ziekenhuizen veranderen [Restructuring hospitals]. Maastricht: 2009.

HOSPITAL GOVERNANCE IN THE NETHERLANDS